Asked by Lizbeilyn Ozoria on Apr 25, 2024
Verified
Which of the following ratios increases when a company switches from FIFO to LIFO during a period of increasing unit costs?
A) Net profit margin.
B) Inventory turnover.
C) Quick.
D) Current.
Inventory Turnover
A financial ratio that measures how often a company's inventory is sold and replaced over a specific period.
Net Profit Margin
A financial metric that shows the percentage of revenue that remains as profit after all expenses, interest, and taxes have been deducted.
FIFO
First In, First Out (FIFO) is an inventory valuation method where goods that are first acquired are the first to be sold, useful in managing inventory and costs.
- Ascertain and evaluate the inventory turnover ratio.
Verified Answer
SH
Serena Hernandez7 days ago
Final Answer :
B
Explanation :
When a company switches from FIFO to LIFO during a period of increasing unit costs, the cost of goods sold (COGS) will increase, which will lower the net profit margin. However, because LIFO will value inventory at a lower cost (the most recently purchased goods), the inventory turnover ratio will increase. Quick and current ratios are not affected by the method of inventory accounting.
Learning Objectives
- Ascertain and evaluate the inventory turnover ratio.